Sale of UK Repair Company Hits Snag Over Intellectual Property Rights

Jul. 29, 2013 - 03:45AM
|

The UK Defence Support Group is involved in the assembly of the Scout Specialist Vehicle. (General Dynamics UK)

LONDON — The British government plans to sell the state-owned company that repairs and upgrades a wide range of armored vehicles, small arms, avionics and other equipment for the military. But the deal has hit a last-minute hitch over the ownership of industry intellectual property rights (IPRs).

The Defence Ministry announced plans to sell the Defence Support Group (DSG) as part of the 2010 Strategic Defence And Security Review. Government advisers are readying the business case for the sale to present to government ministers this autumn, probably in October.

This month, MoD informed industry it was starting a two-month consultation ending late August with contractors “to ensure that there are no ongoing conflicts with regard to the IP used by DSG in carrying out its business.”

The note in the MoD’s Contract Bulletin also revealed that, rather than selling off DSG as a complete package, the government will likely exclude its electronics and component business from the sale.

The government has pledged to complete the sale by the end of the 2014-15 financial year, just ahead of an expected general election.

Estimates put the likely price tag for DSG as high as 200 million pounds (US $306 million), but industry executives think 150 million pounds is more realistic.

DSG had a turnover of 182 million pounds last year with a 10.5 percent return on capital employed. The MoD is widening DSG’s role into new business sectors, such as fleet management, to make it more attractive to would-be buyers.

Babcock, BAE Systems and General Dynamics all expressed an interest to buy last year, but it’s unclear who might be interested when it actually hits the market.

Most industry executives here were reluctant to speak, saying the IPR issue was far too sensitive.

Industry IPR is handed over to DSG to allow the company to undertake the work required on the fleets of armored vehicles and other equipment it maintains, repairs and updates for the military here.

The contract default position with the MoD is they have the rights to use the IPR or hand it over to somebody else for the purposes of ministry contracts.

One industry executive said the issue revolves around IPR that has been handed over outside of the contractual arrangements.

“The issue is who gets control of the potentially large amount of IPR given to DSG over and above the contract requirements relationship building and other reasons. Nobody expected this information would be released to commercial rivals.”

The audit announced in the Contracts Bulletin aims to establish who in industry objects to their IPR being handed over to the new DSG ahead of bilateral negotiations to resolve any individual issues. An MoD spokesman said the department has “been engaged on IP work for a long time; ... we are still working to resolve the issue and deliver a successful sale in the 2014-15 financial year.”

Industry’s concern on IPR is not just limited to DSG. Executives here say they have been spooked by a clause in the government’s recent defense reform legislation that allows the MoD to hand over IPR to a contractor appointed to lead the possible upcoming privatization of Britain’s defense procurement and support effort .

The spokesman said retaining ownership of DSG’s electronic and components business remains an option.

The business unit maintains highly sensitive avionics systems for the RAF. It works on the Typhoon combat jet and will likely have a key role in maintaining the F-35 when it enters service.